Jay:  Today’s show guest is legendary investor, Marc Faber. Marc is a Swiss investor based out of Thailand. Faber is the publisher of the Gloom, Boom, and Doom Report newsletter and is director of Marc Faber, Ltd, which acts as an investment advisor and fund manager. Faber is credited for advising his clients to get out of the stock market before the October 1987 crash and has been long-term bearish about the American economy for a number of years, and he continues to be so. We have quite an interesting discussion today, which I’m sure you’ll appreciate if you follow Marc or have ever seen any of his interviews or presentations in the past. So without further ado, here is my conversation with the legendary Marc Faber.

Well, Marc, thank you so much for joining us. For the ladies and gentlemen in the audience, we are here with a very special guest, Marc Faber, editor and publisher of the Gloom, Boom, and Doom Report. He writes at his website, www.GloomBoomDoom.com. Thank you so much for your time, Marc. We are very excited to have you on.

Marc:  Thank you.

Jay:  I want to just start off with a news bit that I’m sure you’ve heard of, where China came out talking about their banning of the ICOs. And this Bitcoin thing, which seems to be all the rage these days — and it actually seems to be… People are on both sides of it. But as far as an investable asset class, I think most are in agreement that there’s really no fundamental basis for price discovery. So I just wanted to kick it off with your thoughts on cryptocurrencies and what the future of that might be.

Marc:  I think that cryptocurrencies are here to stay, and there will be more around. Will Bitcoin be the leader? Who knows?

As you know, we had the emergence of personal computers in the 1980s, and before that mini computers and so forth, and in the late 1990s, the internet-related stocks. And yet not all the leading companies at that time are still in business. So we don’t know.

But I think that cryptocurrencies will have a place in the future. I think in 20 years’ time, you will not go into a shop and pay with cash, as 90% of transactions in retail are already with credit cards. I usually pay cash because once you pay with a credit card, you divulge some of your information. So there is a lot of fraud already there, and there will be a lot of fraud with cryptocurrencies in the world.

But I think in general, cryptocurrencies will stay there. The governments will regulate them eventually and tax them and so forth. But I think it’s a reality.

Now, is there a bubble? Yeah, probably there is a bubble. And will the bubble will become bigger before it collapses? Yes, it can. Who knows?

But I have to say that as an investment advisor and an economist, I kind of feel ashamed that I didn’t buy any Bitcoins when they were around $300. I probably would have sold them around $600. I’m saying this is a world of unusual liquidity that was created by central banks. And either way, I’m very happy that cryptocurrencies came up because all the investments measures we’ve been focusing on… Bonds are overvalued; stocks are overvalued, and this and that. And where is there relative value?

And suddenly Bitcoins and cryptocurrencies went ballistic, and all these wise guys, they were not in it, with few exceptions. They may have had like 1% in it, and more people are joining the speculative bubble. But as I said, in a way, I feel ashamed that I didn’t catch on to it early.

Jay:  As an investment advisor and a portfolio manager, you do see that there is a need for an allocation in anyone’s asset allocation portfolio for some sort of cryptocurrency?

Marc:  I don’t own any cryptocurrencies, and I don’t intend to invest in cryptocurrencies for the time being. I might be tempted, in a few years’ time, after they’ve collapsed. You know, you look at the NASDAQ bubble in 2000. It wasn’t a good time to buy NASDAQ-related stocks. But after the collapse in 2002-2003, a lot of technology stocks became overly depressed and oversold, and that was the time to buy.

So in a bubble, you have two choices. Either you buy into the bubble, or you wait until it collapses, and you buy into the leftovers. And I think in terms of cryptocurrencies, I will now wait.

But I may be wrong. Bitcoins, I don’t know what they’re trading at tonight because I just arrived at my office. But maybe they can still go to $10,000, maybe even $100,000 — depends also on the money printing — and then collapse to zero. Who knows?

I’ve written several times about cryptocurrencies. I don’t know what their value will be. There will be cryptocurrencies in the future. I don’t know what the value will be. Are they overpriced today, or are they undervalued? I have no idea.

And given that view, I’m not yet investing in cryptocurrencies, but I think that some people have made a lot of money, and so that’s why I kind of feel ashamed that I wasn’t in it.

Jay:  No, I think we all feel that way. You know, you read about these articles of crypto-millionaires that bot it back in 2011 and ’10 and whatnot, and they’re 20, 30, 40 million. So anyway…

Marc, you’ve been in Asia for now coming on close to half a century.

Marc:  I’m a young man.

Jay:  Absolutely. You were a pioneer, and you spent some time in Hong Kong where I’m based out of, and you are a well-known personality here in Asia and globally. What initially drew you out to Asia, and you basically never left. What was the…?

Marc:  I was born in Switzerland. I had my education in Switzerland. I grew up in a relatively privileged environment, and then in 1970, I started to work for a firm called  White, Weld & Co, the Wall Street firm. And I went to Wall Street.

And then in ’73, they asked me if I wanted to go to Asia, and it had always been my dream in life to go somewhere where I wouldn’t know anyone, and nobody would know me and then build it from there with all the hardship and rewards that come along. And so when the opportunity came along for Hong Kong, I said, of course, I’m very happy to go. I didn’t tell them because I wanted to bargain for a higher salary. Hardship allowance.

But basically I was dreaming of going to a place like Hong Kong, so that’s why I went.

And the reason I then stayed is the economic reason. It was that I saw early on that Asia would become, from a very poor region in the ’70s and early ’80s. I mean, I had American visitors in 1985 that came and said to me, “Please explain to me why is Taiwan and South Korea so poor?” By ’85, they were already relatively rich. But in ’70 to ’73, in the ’70s, I can tell you Singapore, Hong Kong, Taiwan, South Korea, anyplace was extremely poor still.

Because I traveled a lot to Japan, I saw the huge gains that Japan had made since the 1950s. I saw this will also occur in Taiwan and South Korea because they have similar macroeconomic backgrounds. And then that developed, and then I thought it will also happen, the grounds will shift to regions like the Philippines, Thailand, Indonesia, India, China, and others. And so that is the reason that I stayed from a monetary point of view. I saw the potential of Asia.

But the less academic reason is I like Asian girls.

Jay:  Me too.

Marc:  So I’m very happy to be in Asia. I wouldn’t want to go… The last thing I would want to do in my life is to live in America. In Europe, okay, but I prefer Asia by far. It’s also… As you know — you’re in Hong Kong — we don’t have democracies, but who gives… Who cares? I was about the say “Who gives a sh*t?” But who cares about democracies when you can only vote between someone like Hillary Clinton, who is highly dishonest, and Trump, who is a fool. I have no interest in voting for these people.

I want freedom, economic freedom. In other words, I want to be able to travel. I want to be able to start a business. I want to be able to express my views. And in this respect, Asia is far better than the Western world.

Jay:  I agree. My next question is, having been here for multiple bull and bear market cycles, you’ve seen crashes, you’ve seen the likes of Asian financial crisis in ’97, ’98, 2001, ’02, ’03. We had SARS, and then we had, obviously, the global financial crisis. You’ve seen the booms and the busts. I want to ask you what your view now is on China and how you’ve been observing and how you’ve been advising and trading that market. There are a couple of large… Obviously it’s on everyone’s radar right now — China. People that are on the outside don’t know how to play. There are obviously a lot of concerns, growing pains within the country that people are concerned about. But having said that, there’s no doubt that China is well on its way to becoming the number one economy in the world.

So what are your views on China specifically? How do we trade that market?

Marc:  I was one of the first investors in China when it opened up in 1989, and at that time, foreigners couldn’t buy Chinese shares, but through a company that had some investments in China, they had a secretary, and she offered to buy the shares for me.

Jay:  Nice.

Marc:  She suddenly disappeared. It was not a big deal. It wasn’t a huge amount of money. And that’s the usual story. Cheating is one thing people have to get used to in life. That is very important in terms of your investments, that you don’t get cheated. If you get cheated, get cheated with little money and not with the big money. That’s a rule.

Having seen the rise of Asia… And I wrote it in 1997, a book, The Rise and the Fall of Great Cities in the World. I think that it was quite obvious to me that China would eventually open up and that it would grow enormously and that the relative importance of Hong Kong would diminish, relative.

Hong Kong doesn’t have an industrial base any more to speak of compared to China. Hong Kong companies may have industries in China. But basically I saw the rise of China, and I think that as an individual who has investments, essentially, in different assets — real estate, stocks, bonds, commodities, and who has assets globally — I think anyone who has money should have some money in China.

Now, will the market go down? Will they have a depression? Look, the US really took off in terms of economic growth around 1780-1800s. Then in the 19th century alone, they had 19 economic and financial crises alone. They had a Civil War. In the 20th century, they had recessions. They had World War I. They had the Depression years. They had World War II, the Korean War, and so forth. The country still was growing.

So I think you have to find a way to invest in China. I have some Chinese stocks. Maybe some will not do well, and maybe some will do well. And before they do well, they could drop 50%. Okay. I don’t have all my money in China. And Chinese people who have all their money in China, as you know, they diversify and invest overseas and so on.

But personally, having seen this year the performance of Asian markets — India is up like 27%. I measured everything in US dollars. South Korea, remarkably… Of course Korea is up 25% in dollar terms. So they may have a slightly different view than the Americans about the risks.

All I’m saying is I think in the long run we must find ways to invest in China.

Traditionally portfolio biases all say we see people in Europe and the US, they would have 90% of their assets in Europe and in the US — in US stocks, US real estate, European stocks, European real estate.

But I think nowadays the proper allocation for anyone who thinks forward and not backwards, like Americans… Americans, they still believe that they are the exceptional country in the world. Yes, exceptionally corrupt. They’re hypocritical, yes. But nothing else.

And the prestige of the US has gone down as has their economic and military and geopolitical power relative to the rest of the world.

Look at the US Navy. North Korea doesn’t need any missiles. The Navy in America, they destroy themselves. They crash into other ships.

So what I’m saying, nowadays the proper allocation of your funds is at least, at a minimum, 50% in emerging economies. Then you look at emerging economies — Asia, Latin America, Africa, Central Asia, Middle East, and the former Soviet Union. I’ve traveled extensively. I still believe that in Asia, there are some problems, but they have less problems than in other countries.

Jay:  I tend to agree with you. I think that’s why we both have not left Asia.

On your point about the US, there is a large backdrop, this trend, thematic of de-dollarization that people are talking about, China entering the global stage, the IMF added them to the SDR basket. There are a lot of pundits around the world speculating on what the future might look like.

What are your thoughts on the Chinese renminbi? Mainstream media out of the US obviously touts them as currency manipulators, but that could just be propaganda. A lot of people, like you say, don’t actually know what’s going on in China.

Marc:  Hey, who is a currency manipulator? Who is an interest rate manipulator? The Federal Reserve. Mr. Dragi (former President of the European Central Bank) , Mr. Kuroda (Governor of the Bank of Japan). The Chinese had learned something from the Western world — how to manipulate markets.

In my view, they don’t manipulate the currency at all, not at all. They have interest rates that are, in my opinion, too low, but they’re higher than, say, in Europe and in the US. Okay, they also printed money after 2008, massively and so forth. But you understand there’s a difference in how the Chinese debt is growing.

In Europe and in the US, credit is growing as a percent of the economy because the governments have large deficits. These deficits are not spent on productive things. They’re spent on transfer of payment. In other words, they collect tax from you, and they give it to Tom, Dick, and Harry who have chosen that to work is beyond their dignity, so they don’t do anything. They are unemployed. And as unemployed, in many cases in Europe and the US, they receive more from the government than if they went and worked.

Now the Chinese, they also borrowed a lot of money and so forth, and some has clearly been wasted as you and I anybody knows. But a lot of it, like America in the 19th century, was invested in infrastructure. In the 19th century, America built the railroads. It was the railroad-ization of the US. And they built canals. All of them went bust. All of them. But they had the infrastructure.

So even in China, if a lot of their OBOR (One Belt One Road) projects — rails and roads and tunnels — go bust, they’ll still have them. Nowadays, in manufacturing, infrastructure is the key. You can’t produce semiconductors in the middle of nowhere in Uganda if you don’t have the infrastructure to export it, to get the spare parts, to assemble it, and so forth — cannot be competitive. Nowadays, of course, we have more and more robots. But actually the Chinese, they purchase more robots in the world than anybody else.

So all I’m saying is you and many people will criticize the Chinese government here. It’s not perfect. But quite frankly, given a choice, as a leader, I’d rather have Xi Jinping over, say, a Hillary Clinton — who is not only corrupt but a criminal — and over Donald Trump who I admire his political achievements. Unfortunately, he became president on the lowest possible denominator. Simple people voted for him. I’d rather have Trump than Clinton, but I’m just saying the Chinese leadership, most of them — not everybody but I said most of them — are actually highly capable people.

They may be corrupt. Okay. But let’s talk about the corruption in Switzerland, in Germany, in the US, and the world. We have to compare apples with apples.

Jay:  That’s sort of part of the gig — right? — being a politician.

I want to ask you what your thoughts are on current market conditions. The US market, by nearly every measure, is very expensive, overvalued. Globally, how do you see things panning out in the next six months? Are we in for some sort of dislocation? Some sort of a pullback or a drawdown?

Marc:  Look, I cannot speak about the other people, and I’ve been wrong about many things in my life — private life and business life and so forth. But one thing I got halfway right is that I was relatively, by my standards, bullish about equities and bonds in 2009, right at the low of the market. And real estate, incidentally.

So if I look at 2009 — March 6, 2009 — S&P, 666. I look at it today 2400 or whatnot. I look at real estate — gone through the roof in Hong Kong and many other places. And I look at bonds. 2009, the treasury yield was still close to 5%. In Europe, you made a fortune by being long on sovereign debts over the last years. It’s crazy to buy a Swiss government bond at 3% a year. They’re now negative, you understand.

So we had some consumer price inflation, especially…you live in Hong Kong. Maybe you have children and so forth. The cost of living has gone up a lot — education, insurance policies, anything. You go to restaurants; it’s much more expensive than ten years ago and so forth.

But the big inflation, or what I would kind of call the hyperinflation, was in asset prices.

So I believe after 2009, we are in a bull market. Very long by historical standards, gone up a lot. The valuations in the US are very high. They’re much lower in Asia. So I would take off some money from the table.

Relative to the US, Asian stock markets are cheap, inexpensive, relative. They’re not absolutely cheap, but I can buy a portfolio of equities in Asia and get a dividend yield of 5%, but I don’t think it’s all that bad given where interest rates are.

The S&P drops 20%, Asian stocks markets will also go down. Yeah, I agree. But maybe they go down less, and maybe they bottom out before the S&P, and I have the dividend yield. So I think, yeah, the markets are not inexpensive. They are actually in my view relatively expensive. But in Asia, I think they’re reasonable. Not cheap like in 2009 or 2003 or after the crisis in 1998. But they’re reasonable.

Jay:  There are a few pockets of value in Asia, for sure.

When investors look to possibly rebalance and take some chips off the table, as you say, in the US and they look to invest here over in Asia, obviously you mentioned earlier, you’ve got to have some sort of allocation in China. What other countries specifically excite you as far as potential for investment and upside?

Marc:  As you know, this year markets have done very well, so the pickings are becoming slimmer. But I think from a long-term perspective, I think there is still some value in Vietnam. I live in Thailand. I don’t think it’s a dynamic economy, and the government has the great talent to shoot itself in the foot, but what’s new? What’s new? Other governments have similar talents.

Rising valuations here are reasonable. They’re not cheap, cheap, but reasonable.

The problem in Asia is that the good companies are not that cheap. In India, high quality companies sell at 50 times earnings. You understand? They’re not cheap. The reasonable companies sell at 20 times. It’s not that cheap.

So you have to really be selective, and you have to think, what sector is depressed? I think commodities in general are depressed. So plantation companies, in my view, are a reasonable value. And anything to do with agriculture is reasonable value.

Real estate in Singapore or Hong Kong is on the high side, but in Singapore, it’s more reasonable than in Hong Kong. So I think that rents in Singapore are okay. Not great but okay.

Then you have real estate in place in Thailand and other countries. Some of them are also okay. So I think there is some opportunity. But in general, if you ask me, where do you think, among financial assets, you will get the most alpha — in other words outperformance. I think you will probably get it out of precious metal stocks and physical precious metals. That’s my view.

Jay:  Which leads us to the last markets question. It was on precious metals. Sorry to cut into your drinking time, Marc. We appreciate your time. Gold, you are very familiar with gold — an expert. You’ve done a lot of work on that precious metal. What would you recommend as an allocation and at what price?

Marc:  The second question is easier for me to answer. I think, as an investor, or as someone who…say you are working. First of all, I think that when I grew up, my grandparents and my parents would never, never finish any months with any debts. They actually, every month, they saved money because they had gone through World War I, my grandparents, then the Depression years, and then World War II. So in their heads were also bad times, and you need financial reserves for bad times.

My advice is for investors to save some money every month, and of that money that you have, in terms of surplus for investments — whether they’re in stocks, bonds, commodities, Bitcoins or not — I would at least put some money in gold.

Now I’m not saying other people should do the same, but over time, I think I have accumulated approximately 20 to 25% of my assets in gold because I buy every month. I don’t care the price is up. I don’t care the price is down. Okay, it’s nice to know the price has gone up, but I bought it cheaper. It doesn’t change my lifestyle. It’s my iron reserves. I don’t intend to ever sell it. I just have it as an emergency measure.

I have some in safe deposit boxes in Switzerland. I don’t feel that comfortable. I have some in Thailand and some buried in my garden where I will leave it there.

Anyway, if you ask the question, where would you buy it, at what price? In general I still think that after the recent upward move, it’s not terribly expensive compared to stocks and bonds and Bitcoins. So I would hold some gold or silver. Probably silver has, for a speculator, more appeal in the near term. But I don’t buy these assets as a speculation. I’m not interested if the price goes up or down. I just want to have something that is not a financial asset. You understand?

Financial assets, bonds, stocks — who knows? It’s paper.

Jay:  True.

Marc:  Not some physical money. Gold is money but physical.

Jay:  That’s sound advice. I think that that’s the right way to do it, just keep it at a monthly savings plan, if you will.

Marc, thank you so much for your time. The last question is, do you have any new, exciting projects that you’re working on that you want to share with the audience?

Marc:  A very exciting project… Soon I’m going to go to heaven or hell. So take care, old mess.

Jay:  Alright. Thanks, Marc.

Marc:  There my ship, my missile [inaudible 0:37:17]. Take care.

Jay:  Appreciate your time. Take care. Goodnight.